Correlation Between Franklin Liberty and IShares Edge
Can any of the company-specific risk be diversified away by investing in both Franklin Liberty and IShares Edge at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Franklin Liberty and IShares Edge into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Liberty Senior and iShares Edge High, you can compare the effects of market volatilities on Franklin Liberty and IShares Edge and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Franklin Liberty with a short position of IShares Edge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Liberty and IShares Edge.
Diversification Opportunities for Franklin Liberty and IShares Edge
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Franklin and IShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Senior and iShares Edge High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge High and Franklin Liberty is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Franklin Liberty Senior are associated (or correlated) with IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge High has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and IShares Edge go up and down completely randomly.
Pair Corralation between Franklin Liberty and IShares Edge
Given the investment horizon of 90 days Franklin Liberty is expected to generate 1.2 times less return on investment than IShares Edge. But when comparing it to its historical volatility, Franklin Liberty Senior is 2.16 times less risky than IShares Edge. It trades about 0.34 of its potential returns per unit of risk. iShares Edge High is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 4,664 in iShares Edge High on September 2, 2024 and sell it today you would earn a total of 131.00 from holding iShares Edge High or generate 2.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin Liberty Senior vs. iShares Edge High
Performance |
| Timeline |
| Franklin Liberty Senior |
| iShares Edge High |
Franklin Liberty and IShares Edge Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Liberty and IShares Edge
The main advantage of trading using opposite Franklin Liberty and IShares Edge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Liberty position performs unexpectedly, IShares Edge can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in IShares Edge will offset losses from the drop in IShares Edge's long position.The idea behind Franklin Liberty Senior and iShares Edge High pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| IShares Edge vs. iShares Edge Investment | IShares Edge vs. iShares Interest Rate | IShares Edge vs. iShares Fallen Angels | IShares Edge vs. iShares Intl High |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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